Graco Reports Third Quarter Sales and Earnings

October 21, 2009 5:00 PM EDT

MINNEAPOLIS--(BUSINESS WIRE)-- Graco Inc. (NYSE: GGG) today announced results for the quarter and nine months ended September 25, 2009.

Summary

$ in millions except per share amounts

                      Thirteen Weeks Ended      Thirty-nine Weeks Ended

                      Sep 25,  Sep 26,  %       Sep 25,  Sep 26,  %

                      2009     2008     Change  2009     2008     Change

Net Sales             $ 147.3  $ 207.2  (29 )%  $ 432.9  $ 650.6  (33 )%

Net Earnings            17.3     32.8   (47 )%    31.7     110.8  (71 )%

Diluted Net Earnings  $ 0.29   $ 0.54   (46 )%  $ 0.53   $ 1.81   (71 )%
per Common Share

    --  Net earnings were $17 million in the third quarter, on sales of $147
        million.
    --  Sales of $147 million for the quarter are steady compared to the second
        quarter and up 7 percent compared to the first quarter. Compared to the
        third quarter last year, sales and orders decreased in all segments and
        regions.
    --  Gross margin rate of 53 percent for the third quarter improved from 49
        percent in the second quarter and 47 percent in the first quarter, and
        equals last year's third quarter rate.
    --  Currency translation had an unfavorable effect on year-to-date sales
        ($14 million) and net earnings ($5 million).
    --  Cash flow from year-to-date operations totaled $110 million.

"While sales remain low compared to last year, we are pleased with the improvement in profitability over the most recent two quarters of 2009," said Patrick J. McHale, President and Chief Executive Officer. "Cash flow remains strong, and our focus on managing working capital has reduced inventories by $31 million and receivables by $21 million since the end of last year. We also reduced long-term debt by $73 million and made a voluntary $15 million tax-deductible contribution to our defined benefit pension plan. We intend to continue making targeted investments in our strategic growth initiatives while managing working capital."

Consolidated Results

Sales are down 29 percent for the quarter and 33 percent year-to-date. For the quarter, sales decreased 25 percent in the Americas, 39 percent in Europe (36 percent at consistent translation rates) and 25 percent in Asia Pacific. Year-to-date sales decreased 30 percent in the Americas, 44 percent in Europe (38 percent at consistent translation rates) and 26 percent in Asia Pacific.

Gross profit margin, expressed as a percentage of sales, was 53 percent for the quarter and 50 percent year-to-date, compared to 53 percent and 54 percent, respectively, for the comparable periods last year. For the quarter, the favorable effects of pricing, lower material costs and cost reduction actions are offset by decreases from lower production volume and increased pension cost. Decreases in the year-to-date rate were due to lower production volumes (approximately 5 percentage points), unfavorable currency translation rates (approximately 1 percentage point) and increased pension cost (approximately 1 percentage point). Decreases were offset somewhat by the effects of favorable material costs and pricing.

Total operating expenses for the quarter and year-to-date are down 10 percent and 8 percent, respectively. For both the quarter and year-to-date, the effects of spending reductions and lower volume-related expenses are partially offset by higher pension expenses. Year-to-date, a $4 million decrease from translation effects is partially offset by $2 million related to workforce reductions.

Effective income tax rates were 30 percent for the quarter and 31 percent year-to-date, down from last year's rates of 34 percent for the quarter and 33 percent year-to-date. A higher-than-expected benefit upon filing of prior year tax returns contributed to lower rates in 2009. Effective rates were higher in 2008 because the R&D tax credit was not renewed until the fourth quarter and no credit was included in the provisions for the first three quarters of 2008.

Segment Results

Certain measurements of segment operations are summarized below:

            Thirteen Weeks                       Thirty-nine Weeks

            Industrial  Contractor  Lubrication  Industrial  Contractor  Lubrication

Net sales
(in         $ 78.2      $ 55.4      $ 13.7       $ 226.8     $ 163.2     $ 42.9
millions)

Net sales
percentage
change        (34)%       (18)%       (37)%        (38)%       (24)%       (38)%
from last
year

Operating
earnings
as a
percentage
of net
sales

2009          26%         20%         (1)%         20%         15%         (8)%

2008          30%         22%         16%          32%         23%         18%

All segments experienced double-digit percentage decreases in sales compared to last year for both the quarter and year-to-date. Improved third quarter operating earnings of all segments reflect the lower cost structure resulting from workforce and other spending reduction actions taken in the first quarter of 2009 and the fourth quarter of 2008. Year-to-date operating earnings of all segments reflect the impacts of low volume, workforce reduction costs and higher pension cost. Contractor operating results are affected by sales, costs and expenses related to the rollout of entry-level paint sprayers to additional paint and home center stores earlier in 2009 and in 2008. Mix of product sold and costs related to discontinued products contributed to lower margin rates in the Lubrication segment.

Outlook

"While economic conditions continue to create headwinds for our business, we are encouraged by improved profitability in each of the last two quarters, resulting from our efforts to improve production costs and control expenses," said Patrick J. McHale, President and Chief Executive Officer. "We expect to continue investing in growth initiatives including product development, international expansion and entering new markets. We believe the Company will emerge from the recession with strong, profitable growth."

Cautionary Statement Regarding Forward-Looking Statements

A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company's Annual Report to shareholders, which reflects the Company's current thinking on market trends and the Company's future financial performance at the time they are made. All forecasts and projections are forward-looking statements. The Company undertakes no obligation to update these statements in light of new information or future events.

The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Item 1A of, and Exhibit 99 to, the Company's Annual Report on Form 10-K for fiscal year 2008 (and most recent Form 10-Q, if applicable) for a more comprehensive discussion of these and other risk factors. These reports are available on the Company's website at www.graco.com and the Securities and Exchange Commission's website at www.sec.gov.

Conference Call

Graco management will hold a conference call, including slides via webcast, with analysts and institutional investors on Thursday, October 22, 2009, at 11:00 a.m. ET to discuss Graco's third quarter results.

A real-time Webcast of the conference call will be broadcast live over the Internet. Individuals wanting to listen and view slides can access the call at the Company's website at www.graco.com. Listeners should go to the website at least 15 minutes prior to the live conference call to install any necessary audio software.

For those unable to listen to the live event, a replay will be available soon after the conference call at Graco's website, or by telephone beginning at approximately 2:00 p.m. ET on October 22, 2009, by dialing 800.406.7325, Conference ID #4170310, if calling within the U.S. or Canada. The dial-in number for international participants is 303.590.3030, with the same Conference ID #. The replay by telephone will be available through October 27, 2009.

Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries. For additional information about Graco Inc., please visit us at www.graco.com.

GRACO INC. AND SUBSIDIARIES

Consolidated Statement of Earnings (Unaudited)

                              Thirteen Weeks Ended      Thirty-nine Weeks Ended

                              Sep 25,      Sep 26,      Sep 25,      Sep 26,

(in thousands, except per     2009         2008         2009         2008
share amounts)

Net Sales                     $ 147,308    $ 207,231    $ 432,900    $ 650,581

 Cost of products sold          69,167       97,071       217,423      299,805

Gross Profit                    78,141       110,160      215,477      350,776

 Product development            8,752        9,626        28,584       26,605

 Selling, marketing and         26,589       32,420       86,814       102,083
 distribution

 General and administrative     16,613       15,585       49,317       50,142

Operating Earnings              26,187       52,529       50,762       171,946

 Interest expense               1,148        1,934        3,735        5,443

 Other expense (income), net    203          623          889          606

Earnings Before Income Taxes    24,836       49,972       46,138       165,897

 Income taxes                   7,500        17,200       14,400       55,100

Net Earnings                  $ 17,336     $ 32,772     $ 31,738     $ 110,797

Net Earnings per Common
Share

 Basic                        $ 0.29       $ 0.55       $ 0.53       $ 1.83

 Diluted                        0.29         0.54       $ 0.53       $ 1.81

Weighted Average Number of
Shares

 Basic                          59,940       59,769       59,827       60,521

 Diluted                        60,314       60,365       60,133       61,168

Segment Information (Unaudited)

                              Thirteen Weeks Ended      Thirty-nine Weeks Ended

                              Sep 25,      Sep 26,      Sep 25,      Sep 26,

                              2009         2008         2009         2008

Net Sales

 Industrial                   $ 78,242     $ 117,685    $ 226,808    $ 365,028

 Contractor                     55,379       67,751       163,213      215,992

 Lubrication                    13,687       21,795       42,879       69,561

 Consolidated                 $ 147,308    $ 207,231    $ 432,900    $ 650,581

Operating Earnings

 Industrial                   $ 20,332     $ 35,874     $ 45,262     $ 117,847

 Contractor                     11,138       15,226       24,420       49,663

 Lubrication                    (167    )    3,409        (3,348  )    12,333

 Unallocated corporate          (5,116  )    (1,980  )    (15,572 )    (7,897  )

 Consolidated                 $ 26,187     $ 52,529     $ 50,762     $ 171,946

All figures are subject to audit and adjustment at the end of the fiscal year.

The Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Management's Discussion and Analysis are available in our Quarterly Report on Form 10-Q on our website at www.graco.com.

    Source: Graco Inc.

Related Categories

Press Releases

Stocks Mentioned

Related Entities

• Layoffs

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?